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LG Energy Solution Faces Growth Challenges Amid EV Market Shift

Slowing EV Adoption in Europe, America and Rising Chinese Competition Impact LG Energy's Expansion Plans
South Korea
l 373220.KO Blue Chip 150
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LG Energy Solution, a major player in the electric vehicle (EV) battery market, is encountering a growth plateau as challenges in the European and American EV sectors and increasing competition from Chinese companies prompt a strategic reassessment. The South Korean battery maker, which had been riding high on the global shift to EVs, revealed a 6% year-on-year decline in revenue for the October-December quarter of 2023, marking its first significant drop in sales.

Despite a 43% increase in operating profit to 338.2 billion won, boosted by U.S. tax credits, LG Energy fell short of market expectations. Without these credits, profits would have been substantially lower. The decline in revenue is largely attributed to weakened demand in the U.S. and European markets, where key clients like General Motors, Volkswagen, Tesla, and Hyundai Motor have experienced sluggish EV sales, leading to inventory build-up and reduced production demands for LG Energy.

The battery market is also witnessing a downward price trend, driven by declining costs of metals like lithium and nickel. Analysts from Eugene Investment & Securities note a significant drop in battery prices, with further reductions expected in the current quarter.

Intensifying competition from Chinese manufacturers, particularly CATL, is another factor influencing market dynamics. CATL’s aggressive expansion and partnerships with major automakers in the U.S. and Europe have contributed to the pricing pressure. The company’s initiatives include supplying batteries to Tesla, BMW, Volkswagen, Volvo Cars, and a new contract with Stellantis.

LG Energy, which ranked third globally in the automotive battery sector for most of 2023, is facing a widening gap with market leaders CATL and BYD. Despite these challenges, LG Energy CFO Lee Chang-sil remains optimistic about the long-term EV adoption trend, expecting a return to growth levels by the second half of fiscal 2025.

The company continues its aggressive expansion in North America, collaborating with automakers like GM, Honda Motor, Stellantis, Hyundai, and Toyota Motor on new production facilities. However, concerns about potential supply gluts and policy changes, especially with the upcoming U.S. presidential election, are leading to cautious investment strategies.

Amid these market fluctuations, LG Energy’s stock value has seen a significant decline, falling behind SK Hynix in market capitalization. The appointment of Kim Dong-myung as the new CEO marks a strategic shift, with the company focusing on qualitative growth and adapting to the evolving EV battery market landscape.

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